Opening the Door

The respective paths charted by China through its reform and opening up and India through its policies of economic liberalization have complemented each other in their journeys towards economic development and prosperity.

by
Sreemati Chakrabarti

December 18, 2018

China holds a grand gathering to celebrate the 40th anniversary of the country's reform and opening-up at the Great Hall of the People in Beijing, capital of China, Dec. 18, 2018. (Xinhua/Yin Gang)

Opening the Door

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The year 1978 marked the beginning of the “second revolution” of China when Deng Xiaoping announced at the Third Plenary Session of the 11th Central Committee of the Communist Party of China (CPC) that the country would follow the policy of Four Modernizations. These comprised the modernizations of agriculture, industry, defence, and science and technology. While all observers regarded this as a paradigm shift in China’s domestic policy, no one ever thought that it would transform China completely.

These modernizations marked the beginning of what has come to be known as China’s reform and opening up – a landmark set of reforms that has led to the country achieving and consolidating its position as the world’s second-largest economy today.

The narrative of China’s reform and opening up is one of spectacular growth and development never before seen in human history. For nearly three decades, from the early 1980s to around 2012, China’s GDP growth averaged at nearly 10 percent a year. The per capita income went up from US$300 to US$8,000. Improved standards of living of the Chinese people became evident within one decade.

In the first round of reforms, the main beneficiaries were the farmers. The household contract responsibility system introduced as part of the reforms in agriculture enabled farmers to sell their surplus produce in the open market, leading to increased income. Industrialization also received a push. The second round of reforms initiated after the 14th CPC National Congress in 1992 gave a massive boost to growth through investments in infrastructure, expansion of the manufacturing and industrial base, promotion of trade and tourism and prioritizing higher education.

China’s reform and opening up has had many positive consequences. The most important one is that hundreds of millions of people have been lifted out of poverty within four decades. Reforms-related policies created a huge middle-class group. Wealth generation led to the overall improvement and growth of higher education, science and technology. Expansion in the number of universities, the subjects taught, and the number of students going for university education – all of these evidenced the rejuvenated higher education scene in China. Massive state funding of selected universities led to world-class research. This in turn helped innovation. The exchange of scholars and joint research projects between Chinese and foreign universities and research institutes lent an added impetus to scientific progress. Many Chinese inventions were patented and large numbers of Chinese scientists and researchers published their academic papers in prestigious international journals. In addition, many research institutes and think tanks were set up, helping not only advance their research agenda but also promote face-to face interactions with their counterparts in foreign countries.

Trade and foreign direct investment (FDI) both expanded phenomenally. The number of countries with which China promoted trade relations went up each year. American, Japanese and European multinationals among others entered China. Soon China became the most favoured destination for foreign investors. Tourism expanded greatly as the number of both inbound and outbound tourists went up and continues to grow. Another sector which grew at a very rapid pace was real estate. Numerous apartment complexes were constructed all over urban and suburban China. Volumes can be written about the China growth story which is still unfolding.

However, there have also been certain negative side effects of this massive growth and development. These include regional imbalance, environmental degradation, corruption, and a wide rural-urban divide. A fact too well-known to be elaborated on is that rapid economic growth in any developing country will lead to disparities. The Chinese people and their leaders are well aware of these issues. While it is not possible to completely eliminate these problems in a short span of time, it can be hoped that measures and policies to keep them to a minimum can be pursued.

Let us now turn to the India story which is also remarkable. The government of Prime Minister Narasimha Rao, which came to power in 1991, introduced policies of liberalization and privatization. Government control in many sectors was withdrawn. The private sector and individual private entrepreneurs took full advantage of the liberalized system. This liberalized economic environment, along with a speedily developing computer software sector, enabled innovation and rapid growth of the economy in an all-round way. Wealth generation was a visible outcome and employment opportunities were created. There was impressive growth in the infrastructure and industrial sectors. The micro, small and medium enterprises (MSMEs) emerged as an important arena for products and employment generation. These also boosted India’s trade to a great extent. Purchasing power of Indians increased, which in turn benefited small and big industries. FDI went up exponentially. Multinational companies set up factories and outlets in many parts of the country and this created employment opportunities for workers, technicians, managers and engineers. This economic transformation created the demand for more engineers, software professionals, lawyers and accountants, among others.

The higher education sector responded. Universities, which until then had been primarily in the government sector, were unable to meet the rising demand, leading to the establishment of some private universities, engineering colleges and technical institutes.

Privatization in higher education was introduced mainly to ease the pressure on public universities. The latter grew at a relatively slow pace but many new departments and disciplines were introduced. The emergence of a globalized world combined with these policies helped the Indian economy grow at a fast pace. Like China, India began to see unprecedented development. The country’s massive investments in infrastructure saw the building of roads, bridges, airports, shipyards, etc. From the early 1990s, India began emerging as a major computer software power and this sector developed further with liberalization so much so that there was a huge global demand not only for Indian software products but also Indian computer professionals and engineers. This increased the volume of foreign exchange which further nourished the economy.

The negative consequences of India’s otherwise successful growth story have found parallels with China. The rural-urban divide, environmental degradation and corruption are common to both. However, in India, the number of people still living in poverty is much higher than that of China. In addition, uneven development in India has led to the re-emergence and revival of the Naxalite movement in almost one-third of India. Destruction of forests for construction projects has ended up displacing tribal communities from their homes.

India’s reform process started at about the same time as China’s second phase of reforms. Although India maintained a steady and stable pace of development in the subsequent years, its gap with China increased with each passing year. India’s ‘Look East’ policy (now called ‘Act East’) paved the way for economic cooperation with China as well as other East and Southeast Asian countries. Trade with China began to increase phenomenally and within a decade China became India’s largest trading partner, replacing the United States. Chinese goods began to flood Indian markets.

While in the early years it was only low-cost consumer goods, the last decade has witnessed Chinese electronic goods like air conditioners, refrigerators, televisions and washing machines entering the Indian market. The most unprecedented, however, is the mobile phone sector whose market share is increasing by the day. While South Korean companies currently have much of the market share in India’s electronic goods sector, Chinese companies are expected to give them tough competition in the foreseeable future.

However, this turn of events has also resulted in a trade imbalance between the two nations. Finished Chinese goods have long been very much in demand in India as they are less expensive. However, Indian goods have had limited demand in China, and India’s exports to China have mainly comprised raw materials and minerals.

The trade imbalance has been an issue between India and China for more than a decade. India’s desire to have access to the Chinese market in the areas of IT services, pharmaceutical products and agricultural goods is yet to be fulfilled. However, much of the trade deficit can perhaps be met by increased bilateral investment which has been a relatively recent positive development.

India and China have complemented each other in their path towards economic development and prosperity. The trade with China has been a big boon for many of India’s small and medium traders as well as shopkeepers. Here we ought to keep in mind that India has a massive informal sector, believed to account for as much as 80 percent of its total employment. Raw materials and minerals from India have gone a long way in helping China’s industrialization.

Cooperation in higher education and research, in my view, is the most mutually beneficial step for the two countries. Over the last two decades, large numbers of Indian students have studied medicine in China. Exchanges through research projects in science have seen a modest increase but there is a lot of potential for more cooperation in research. Innovations in science and technology and new scientific arenas like artificial intelligence have greater potential for advancement if the best brains of India and China cooperate. In other academic disciplines like languages and social sciences, student exchanges are growing slowly but steadily. Ayurveda and yoga have entered China and are now known to many Chinese people. The popularity of Bollywood films in China not only helps the Indian film industry financially but also binds the people of the two countries together. I find that many Chinese now wish to familiarize themselves with India.

Border trade, which is growing at a modest pace, has helped communities living near the borders to improve their livelihoods through increased incomes. At present, it is only in the Nathu La area where border trade takes place in the summer months. Other borders need to open up to expand this sector. This will greatly benefit the people living in these areas, many of whom are underprivileged. Let us not forget that in the bygone era, when borders did not exist, there was flourishing trade between Indians and Chinese, particularly the Tibetans. Being neighbouring countries, India and China can benefit much from border trade as it reduces transport expenses in a big way.

The security dimension in India-China relations has been a major block in the normal development of relations between the two emerging nations. However, despite this, the two nations have played a significant role in each other’s economic growth. Among the many positive effects of the reform and opening up in China and policies of economic liberalization in India has been the emergence of a huge middle-class group in both countries. This section of society, through combining its skills and entrepreneurial initiatives with global ambitions, has greatly added to the growth story of India and China.

China’s reform and opening up and India’s economic liberalization opened the doors of both countries wider to the world. Over the decades since, development in both countries has constantly expanded and deepened across various sectors, and cooperation between the two nations has grown manifold. With India and China having lately begun to explore newer avenues of cultural, economic and political exchange, the next chapter of their respective growth narratives is expected to shine even brighter.

The author is vice chairperson at the Institute of Chinese Studies, New Delhi.